The
Reserve Bank of Australia’s head of economic analysis, Jonathan Kearns,
recently gave a speech entitled ‘The Outlook for Dwelling Investment’ that
provided some interesting insights into the future of Australia’s residential
property market. In particular, he forecasted that ongoing demand for new
housing will drive increasing dwelling investment over the coming years.
According
to Mr Kearns, low vacancy rates in Australia’s rental markets are a telling
indicator of the significant demand that already exists for new dwellings:
“Tightness
in the rental market will generally be indicative of tightness in the overall
property market. While the typical owner-occupier property will differ in many
ways, there is significant interconnection between the markets for owner-occupier
and rental properties,” he said.
Commenting
on why these market factors have not been reflected in construction rates, Mr
Kearns said that ”while the number of dwellings constructed each year hasn’t
grown, the size, quality and relative cost of each dwelling has.”
Furthermore,
Mr Kearns noted that developers’ exposure to risk has increased in recent times,
off the back of increasing regulation and greater involvement with community
infrastructure provision – an area that had traditionally resided with various
levels of government
Mr
Kearns concluded that dwelling investment would likely increase at a relatively
moderate rate in the medium-term, supported by demands for new housing:
“So
what is the outlook for dwelling investment? While the long-run decline in the
average number of people per household seems to have tapered off at least
partly for demographic reasons, the strong population growth in recent years
and the relatively low rate of dwelling construction suggest that there is
sufficient demand for housing in the economy that an increase in supply could
easily be absorbed.
“Overall,
it looks likely that dwelling investment will pick up at a relatively moderate
rate in the medium term. How quickly and how strongly of course remain
important questions for understanding the impact on the overall economy.”
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